EDP taps quiet primary; new Ally, Regency Energy deals sputter along; funds lose $416 million

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 5 - The high-yield primary market was quiet on Thursday, trailing Wednesday's walloping $7.6 billion of issuance. Many participants were out because of Rosh Hashanah celebrations, sources said.

No dollar-denominated deals priced.

However, a sizable transaction did clear the euro market. EDP Finance BV priced a €750 million issue of 4 7/8% seven-year senior notes.

In the secondary, traders focused on recently priced issues from Ally Financial Inc., Regency Energy Partners LP and Sprint Corp.

"It was all new issues," a trader said.

Of the three deals, Sprint was the only one to trade higher, traders reported.

Even as Sprint's new "monster" deal did well, its existing debt was on the decline as the company said the new issuance could result in it falling out of compliance with the leverage covenant under three credit facilities. As such, Sprint said it was in talks with lenders to resolve the issues and to avoid triggering a default.

$416 million outflow

Cash flows to the high-yield mutual funds and exchange-traded funds turned negative during the week ended Wednesday, sources said, citing information contained in a weekly report from Lipper-AMG.

The funds saw $416 million of outflows during the period.

That trails the previous week's relatively meager $55 million inflow.

Three of the past four weekly flows have been negative.

For bank loan funds, it was a different story altogether, sources said.

During the week to Wednesday, the loan funds saw $728 million of inflows, they added, again citing information contained in the weekly report from Lipper-AMG.

EDP Finance prices €750 million

EDP Finance priced a €750 million issue of 4 7/8% seven-year senior notes (Ba1/BB+/BBB-) at 99.276 to yield 5%.

The yield printed at the tight end of the 5% to 5 1/8% revised yield talk. Earlier talk was 5 1/8% to 5¼%.

Banco Espirito Santo, BPI Group, Citigroup, ING, MBCP, Royal Bank of Scotland, Santander and SG CIB managed the sale. Royal Bank of Scotland will bill and deliver.

EDP Finance is based in Amsterdam. It is a subsidiary of Lisbon-based electricity and gas company Energias de Portugal, SA.

Building Materials on Monday

Building Materials Holding Corp. plans to begin a roadshow on Monday for a $250 million offering of five-year senior secured notes (expected ratings Caa1/B-).

The deal is set to price during the middle part of the week ahead.

J.P. Morgan Securities LLC and Moelis & Co. are the joint bookrunners for the debt refinancing.

Market declines

The high-yield space was under pressure Thursday as Treasury bonds came in on the back of better-than-expected jobs numbers.

The KDP High Yield index reading was 73.17, with a yield of 6.34%. That compared with Wednesday's level of 73.2, with a 6.28% yield.

The Markit Series 20 CDX North American High Yield index meantime slipped 1/16 to 103 7/8 bid, 104 offered.

New issues in focus

"Today was all new issues," a trader said on Thursday.

The most active new deal was Ally Financial's $750 million of 4¾% notes due 2018.

The upsized deal came on Wednesday at a discounted price of 99.123 to yield 4.95%.

Come Thursday, a trader said nearly $40 million of the paper changed hands, falling about half a point to 99 1/8.

Another market source quoted the issue at 99 bid, 99¼ offered.

Regency Energy Partners' $400 million of 5¾% notes due 2020 "didn't trade so well," a trader reported.

He saw the issue, which came at par on Wednesday, trading down to 98¾ bid, 99 offered on Thursday.

Another trader deemed the issue down a point at 983/4.

The deal was originally slated to be around $500 million.

Also from Wednesday business, Sprint's record bond offering, $6.5 billion split between two tranches, was getting a fair bit of play, according to a trader.

"It was all Sprint in the morning," he said of the company's "big monster deal." He said the issues - $2.25 billion of 7¼% notes due 2021 and $4.25 billion of 7 7/8% notes due 2023 - traded below par for part of the day but managed to rebound, ending in a 100½ to 100¾ context.

But while the new issue did well, Sprint's existing debt did not, especially as the company said the new issuance could trigger a default under its credit facilities.

Sprint notes pressured

Sprint said Thursday that its $6.5 billion bond offering from Wednesday could result in a default on three of Sprint Communications Inc.'s credit facilities.

The default would arise as a result of taking on new debt, increasing the company's ratio of debt to EBITDA above the maximum level allowed by the terms of the credit facilities. The Overland Park, Kan.-based telecommunications provider said in a regulatory filing that it is in talks with lenders about a waiver of the covenant until Dec. 31.

The news sent the company's existing issues downward.

The 6% notes due 2022 were the most actively traded of the structure aside from the new issues, a trader said. The paper dropped over half a point to 91 3/8.

The 6 7/8% notes due 2028 meantime lost almost a point, closing at 881/2, while the 6% notes due 2016 dipped only slightly to 1061/4.

The 8 3/8% notes due 2017 weakened almost a point to 112, the trader said, and the 9 1/8% notes due 2017 declined half a point to 1141/4.

The 6.9% notes due 2019 were also off half a point at 102 5/8. The 8¾% notes due 2032 and 7% notes due 2020 were off the most, losing 1¾ and 1 1/8 points, respectively.

The 8¾% notes ended at 1003/4, and the 7% notes finished at 101 5/8.

Navistar weaker

Navistar International Inc.'s 8¼% notes due 2021 were soft again Thursday after the company reported dismal earnings on Wednesday.

Still, a trader said the paper was off just a touch at 99 1/8.

For the quarter, the Lisle, Ill.-based heavy-truck manufacturer reported a loss of $247 million, or $3.06 per share. That compared to a profit of $84 million, or $1.22 per share, for the same quarter of 2012.

Revenues dropped 12% to $2.86 billion as demand for heavy-duty trucks declined.

"We clearly need to accelerate progress with our financial results, and we are already implementing additional cost reduction and business improvement actions to counter our near-term volume challenges," said Troy Clarke, chief executive officer. "This includes resizing our company to match our current business environment."

As such, the company said it would cut about 500 jobs.

Lucent debt drives up

Alcatel-Lucent SA saw its bonds improving on news the company had won a contract to build out Telefonica's wireless network in Spain.

One trader said the 6.45% notes due 2029 put on more than a point to close at 803/4. Another market source pegged the issue at 80¼ bid, up a point.

The Paris-based telecommunications company did not disclose how much the contract was worth, but the Wall Street Journal, citing "people familiar with the multi-year contract," said it was valued at about €300 million, or $396.2 million.

Penney dumps Martha Stewart

J.C. Penney Co. Inc. was in the news again Thursday. News outlets reported that the struggling retailer was dropping the Martha Stewart brand.

Even on the back of that news, the bonds "continued to grind higher," a trader said.

He said the 7.95% notes due 2017 were up half a point at 89 and the 5¾% notes due 2018 were "a few points higher" at 831/2.

At another desk, a trader saw the 7.4% notes due 2037 at 73, up almost 3 points.

The second trader also saw the 5¾% notes at 831/2, which he deemed up 2 5/8 points.

J.C. Penney and Stewart inked a deal in 2011. Macy's, however, soon put up a fight, alleging that its agreement with Martha Stewart Living Omnimedia gave it the exclusive right to carry the brand's home goods. Now it seems that J.C. Penney is throwing in the towel, choosing to discontinue carrying the items.

Chatter is that J.C. Penney's top dog, Mike Ullman, was not impressed with the line and that sales had been disappointing.

OGX plan could come soon

OGX Petroleo & Gas Participacoes SA's 8½% notes due 2018 were falling Thursday on reports a restructuring plan would be released by next week.

A trader said the notes were down over half a point at 18 5/8. Another trader said the issue was lower, trading with an 18 handle.

According to the Brazilian newspaper Folha de S.Paulo, majority owner Eike Batista plans to unveil the plan in New York on Tuesday. The news outlet reported that Batista intends to ask creditors to swap their debt for equity and to inject new cash.

Folha de S.Paulo said an OGX spokesperson denied that any meeting was planned.

It was also reported on Thursday that Black Rock Inc. has been buying up shares of the struggling oil producer. Batista has been divesting his stake in order to raise cash to inject into the company.

Sorenson slipping

A trader said concerns about a potential restructuring weighed on Sorenson Communications Inc.'s 10½% notes due 2015.

"They were drifting lower," he said, seeing the paper in a 74 to 75 context.

"I think the bonds have come under pressure because of concern that a restructuring will have to occur and earnings have been trending negatively," he said.

The bonds mature on Feb. 1, 2015. A $550 million term loan that came earlier this year comes due Oct. 31, 2014.

Sorenson is a Salt Lake City-based provider of video relay telecommunications services for the deaf and hard of hearing.

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